Odd Lots Newsletter: This Is What Regime Change Looks Like
The Marriner S. Eccles Federal Reserve building in Washington, D.C.
Photographer: Stefani Reynolds/BloombergWelcome to the subscriber-only Odd Lots newsletter. Every week, Joe Weisenthal and Tracy Alloway bring you their thoughts on the most interesting developments in markets, finance and economics.
Regime change is one of those terrible phrases that gets thrown around so much that eventually it losses all meaning. And of course, as Philip Tetlock once told us on the pod, calling turning points in markets can be tricky.
So perhaps what we’re witnessing in bonds right now might better be described as a massive wake-up call for a market that has been induced by central banks into a deep slumber for many years.
Thursday’s higher-than-expected inflation numbers kicked off some almighty moves in yields, with the benchmark 10-year U.S. Treasury rising above 2% for the first time since 2019 and the two-year jumping more than 20 basis points. That spike happened despite the fact that the market has already been pricing in more rate hikes for some time.
You can see just how big the jump in the two-year was in the chart below, which shows daily moves in the note since the early 2000s.
The bond market used to be a lot more lively before 2009,when the Federal Reserve began expanding its quantitative easing program. Things got even sleepier after it unveiled more emergency measures in March of 2020, during the worst of the Covid-19 pandemic.